Can New York’s Illegal Cannabis Dispensaries Be Stopped? Governor Hochul Proposes a Solution

By Michelle Bodian, Elliot Choi

May 12, 2023

New York City has seen a proliferation of illicit and unregulated cannabis stores since the Marihuana Regulation & Taxation Act (MRTA) was signed into law on March 31, 2021. To date, enforcement efforts have been limited; however, that could all change with the passage of the Governor’s 2024 budget.

As touted in Governor Hochul’s press release, the budget includes provisions that increase civil and tax penalties for the unlicensed and illicit sale of cannabis in New York. The provisions allocate different rights and responsibilities between the Office of Cannabis Management (OCM) and the Department of Taxation and Finance (“Tax Department”). Only time will tell whether these new measures will curb the illicit market. Read on for key aspects of the provisions.

Prohibited Acts

• Knowingly and unlawfully selling, giving, or causing to be sold or given, any cannabis or cannabis products for which the sale of such products requires a license

• Illegal stores can’t have more than 5lbs of cannabis or 1lb of concentrate “with the intent that such products be sold at retail”

• Presumed to be for “sale at retail” if cannabis is found in any place of business used for buying and selling of adult-use cannabis.

Inspection Rights

• The Tax Department can conduct regular inspections of illicit stores, including books and records (which OCM can also inspect).

• OCM, or the attorney general on behalf of the OCM, can inspect any businesses that are selling cannabis/hemp, not just those that are licensed with the OCM

Penalties

• Class A misdemeanor for any person who knowingly and unlawfully sells, gives, or causes to be sold or given, any cannabis or cannabis products for which the sale of such products requires a license.

  • "A" misdemeanors: The most severe misdemeanor crimes and the sentences for a conviction to an “A” misdemeanor offense can include community service, a fine, mandatory state surcharges, issuance of an order of protection, 2, 3 or more years of probation, up to 1 year in the county or city jail, such as Rikers Island, or a split sentence which includes a shorter period of incarceration for a period of time, such as 60 days, and then a longer period of probation following release from the jail.

  • Note that a second offense within three years is a Class E felony.

• Property owners who knowingly lease their property to tenants for any unlawful business are jointly and severally liable with their tenants for any damage resulting from such unlawful use, occupancy, trade, manufacture or business.

• Revocation of, or refusal to issue tax certificates (including for failure to allow tax inspectors into the store for inspection)

  • Tax certificates are required to legally make any taxable sales in New York

• Seizure of any illicit cannabis (Tax Department can seize product)

• Fines

  • If caught without a tax certificate of registration:

    • 1^st violation: $7,500

    • 2^nd violation within 3 years: $15,000

  • Additional fine for illicit cannabis equal to:

    • 1^st violation: 2x tax amount

    • 2^nd violation: 3x tax amount

  • Knowingly possess for sale:

    • 5 to 12 lbs of cannabis or 1-4llbs of concentrate/edibles: $25,000

    • 12lbs+ of cannabis or 4lbs+ of concentrate/edibles:

      • 1^st violation: $75,000;

      • 2^nd violation within 3 years: $100,000

  • Knowingly possess for sale in a *commercial location 5lbs+ of cannabis/1lbs+ of concentrate/edibles:

    • 1^st violation: $50,000

    • 2^nd violation within 3 years: $100,000

    • *Commercial location includes vehicle held out as open to the public

  • Distribution to unlicensed retailers

    • 1^st violation: $50,000

    • 2^nd violation within 3 years: $100,000

  • Daily penalties:

    • 1^st violation: $10k per day if a finding is made that the defendant “intentionally conducted, maintained, or permitted’ plus 5x revenue from prohibited sales or 3x projected revenue

    • 2^nd violation: $20k per day

  • Refusal to allow inspection:

    • 1^st violation: $4k per day

    • 2^nd violation: $8k per day

  • Landlords: jointly and several liable with tenants

    • LLs can be subject to a penalty equal to 3 times the rent charged for the duration of the violation

• Injunctions

  • OCM provided authority to request an injunction, which can be brought by the OCM or attorney general

  • Injunctions can be made permanent

  • Can get a preliminary injunction while waiting for permanent – only if building/premises is used for commercial purposes only and only if no legal activity takes place

  • Owner, lessor and lessee are all potential defendants for injunctions

It is important to note that the Cannabis Control Board (CCB) may need to promulgate regulations for certain aspects of the enforcement provisions. At the May 11, 2023 CCB meeting, the OCM stated emergency regulations to implement these enforcement provisions will be presented to the CCB within the next two weeks. In addition, enforcement resources will need to be allocated and additional personnel hired before the OCM or Tax Department can start to apply the enforcement provisions.

Contact our New York team if you have any questions about these provisions. 

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